Central Banks - What's Ahead? | Bank of Canada (CAD), Riksbank (SEK) | ING Economics

Central Banks - What's Ahead? | Bank of Canada (CAD), Riksbank (SEK) | ING Economics

Bank Of Canada

Our call: An additional 250bp of rate hikes to 3.5% with 50bp moves at the next three meetings.

Rationale: The Canadian economy looks set to be among the top performers in 2022 and 2023 thanks to a strong jobs market and an important commodity production focus. Inflation is at 30-year highs and is still rising while the housing market remains vibrant. The BoC is worried about inflation expectations becoming unanchored and is implementing a swift run down in its balance sheet in combination with rapid interest rate increases.

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Risks to our call: Predominantly to the upside given the positive economic outlook, especially if labour shortages become more of a problem and wage growth accelerates. It is worth noting that the BoC tends to be more interventionist/reactionary than the Federal Reserve. The BoC has embarked on six separate interest rate hike cycles since 2000 versus only four from the Federal Reserve.

James Knightley

Reserve Bank of Australia

Our call: Rate hike in June and July and possibly monthly to the year-end and beyond.

Rationale: Having just hiked rates by 25bp in May, and escaping from the dovish shackles it had created for itself, there is now little to stop the RBA from responding to the much higher inflation backdrop than the one it had bargained on seeing. The next big data release will be the wage price index on 18 May. This should ensure a further June hike of 25bp, and possibly set the scene for rate hikes in July and August too. Even so, markets have priced in an unrealistically aggressive path for tightening from the RBA over the course of the year, even if inflation remains high and growth remains robust.

Risk to our call: Higher wages growth and higher inflation coupled with still robust growth could see the RBA accelerate its tightening to 50bp in coming meetings.

Rob Carnell


Our call: Four more 25bp hikes (June, September, November, February).

Rationale: Inflation has come in much higher than the Riksbank had expected earlier this year, prompting a monumental turnaround in thinking. Having signalled no hike before 2024 at its February meeting, the central bank hiked in April and its forecast indicates several more to come. Policymakers are focussed on wage talks that conclude next spring, and a tight jobs market combined with higher inflation expectations look set to usher in a higher pay settlement.

Risk to our call: Inflation came in higher than expected again and the central bank’s own scenarios from its last report suggest that could prompt a 50bp hike in June, despite the governor ruling it out for now.

James Smith

Norges Bank

Our call: Hikes each quarter until 3Q23.

Rationale: Norway was among the first to tighten amid the higher energy price environment, a boon for the domestic economy. Norges Bank is more mechanical than most in the way it sets policy and seems comfortable with its one-hike-a-quarter pace set so far.

Risk to our call: Inflation was well above Norges Bank forecasts in April and policymakers have hinted that this could prompt a 50bp hike in June, something we think is becoming increasingly likely.

James Smith

Swiss National Bank

Our call: Rate hikes in Q3 and Q4 2022, and a final hike in Q1 2023 to bring the policy rate back to 0%.

Rationale: With Swiss inflation at 2.5%, above the SNB's target, and the ECB in the process of raising rates, we believe the SNB will seize the window of opportunity to also normalise its monetary policy by exiting negative rates and bringing its rate back towards 0%.

Risk to our call: Any deterioration in the global economic environment leading to a flight to safety would lead to an excessive appreciation of the Swiss franc and prevent the SNB from raising rates.

Charlotte de Montpellier

Central and Eastern Europe/EMEA: Our calls at a glance

Bank of Canada - 1

Source: ING


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